Connecting the dots

Mr. Gershon P. Anumu

Many lovers of Apple products will give you many reasons for their preference, but not much information about the founder, Steve Jobs. Steve Jobs, was an American entrepreneur and business magnate. He was the Co-founder, chairman and CEO of Apple Inc. At a point in time, Apple was on the verge of bankruptcy and he got involved in reviving it. He also founded NeXT, which was a Computer and Software Company.

In 1997, Apple merged with NeXT and he became CEO of the new entity. One of the striking statements he made before his death in 2011 at the age of 56 was: You can’t connect the dots looking forward; you can only connect them looking backwards. So, you have to trust that the dots will connect in your future”.

Like Steve Jobs, connect-the-dots is a puzzle containing a sequence of numbered dots. When a line is drawn connecting the dots, the pattern of an object is revealed. In this regard, I also want us to come together to connect a long and winding chain of dots. These dots will involve many zeros, entering millions and crossing over to reveal the patterns of the periodic minimum paid-up capital for banks operating in the country.                                 



Going down memory lane, the Bank of Ghana in 2003 issued a directive to all the banks in the country at the time to increase their capital to a minimum of GH¢7million (then ¢70billion) by the end of 2006.  All the banks which were in operation used the 3-year interval to meet the requirement before the deadline elapsed. The minimum capital requirement at the time could be described as friendly – and was responsible for the wave of new banks into the industry.

Indeed, that period gave birth to the universal banking licence which removed specialisation in the areas of commercial, development, merchant banking and then created a level playing field for intense competition and product innovation. As a result, these four (4) foreign banks from Nigeria entered the industry – Zenith, UBA, GT Bank, the then-Intercontinental Bank and the (1) Fidelity Bank transformed from a discount house.

It is worth remembering that the universal banking licence opened the gates for government-owned and protected mature flowers– Agriculture Development Bank (adb), Merchant Bank (now umb-Universal Merchant Bank) and the National Investment Bank (NIB) – and then ushered them into the world of many suitors who removed the unique veils on their faces. They could not be green anymore. Thus, apart from their core mandates, they moved into other areas of banking to enjoy the full benefits.

Again, the Bank of Ghana in 2008 raised the bar further to GH¢60million after due consultation with players in the industry. The directive, indeed, mandated all foreign banks operating in the country to fulfil the increase in minimum paid-up capital by end of December 2009.  The Bank of Baroda and BSIC (Sahel Sahara Bank) entered the industry during that capital-regime. The Ghanaian-owned banks in operation at the time enjoyed a waiver to attain the same level of capital by December 2012. To note, they were however required to increase their capital to at least GH¢25million by the end of 2009.

One key observation we can also make regarding this capital-rise is that the banks with local majority share ownership had (four) 4 years of an extended period to comply with the requirement. Even though all the banks in operation then were able to meet the deadline, some mergers and acquisitions came along the line – Access Bank and Intercontinental Bank (now Access Bank); Bank of Africa and AmalBank (now Bank of Africa); Ecobank and The Trust Bank (now Ecobank). UT (Unique Trust) Holdings Limited, with a majority shareholding in BPI Bank, rebranded in 2009 as UT Bank and was in operation until its licence was revoked in August 2017 due to severe impairment of its capital.

What’s more, in December 2013 the Bank of Ghana revised the minimum capital requirements for new banks entering the industry to GH¢120million in accordance with Section 6(2) of the Banking Act, 2007 (Act 673) as amended. This capital, it ordered, was to remain unimpaired at all times. All the existing banks were advised by that directive to “take steps to enhance their capital in line with their business strategy and risk-profile to avoid requesting for single obligor exposure waivers from the central bank.

Unlike the previous instances, this directive was not accompanied by a deadline. Nine (9) banks – one (1) foreign (First National Bank) and (8) local banks some of which were Savings and loans companies/Finance Houses – obtained the universal banking licence within the period. From 2013 to 2017, these new local entrants were beginning to find their feet in the industry. Bam! Here is the GH¢400million directive staring at their faces while sending shivers down their spines. In fact, the recent hike in paid-up capital has become more topical than ever before and characterised by interesting twists and turns.

Key Observations

The main reason why the Bank of Ghana over the years has called on the banks to strengthen their capital base is centred on making them more resilient against unforeseen or expected losses. Thus, helping them build a buffer which places them in a better position to undertake big-ticket transactions. The previous patterns of recapitalisation have been 2003-2006 (3 years), 2008-2012 (4 years) with the exception of 2008-2009 (1 year) for the foreign banks in operation or entering the sector. The patterns of recapitalisation established a precedent for local banks to spend more than one year to beef-up their capitals. This, from my understanding, is the driving force behind the passionate appeal from the leadership of local banks for an extended period – 2022 (4 years) in respect of the GH¢400m.

Now, the GH¢400million directive is across the board and to be fulfilled within a year. Connecting the zeros to the millions up to the 400k is not easy at all. Could the GH¢400million be described as suspect to the survival of the local banks? The money is big ooooooo! (courtesy, Hon I.C Quaye). Some of our foreign counterparts also have a daunting task in meeting the requirement.

Cross-over the dots

Financial results of banks as at 31st December 2017 revealed that 4 (four) foreign banks and one (1) local bank’s stated capital is GH¢60million. Even though the amount is still in line with the 2008 directive, it is however contrary to the 2013 directive – which we earlier-on noted requested that the banks in operation before 2008 enhance their capitals (above the 60m). So far, the end of year financials revealed that nine (9) banks, both foreign and local, have their stated capitals below GH¢120million.

As we have been informed by the regulator, income surplus should be one of the sources to recapitalise. However, the financial results as at December 2017 have not favoured some banks (both local and foreign). Their income surplus accounts are in the red (negative). This has raised the bar to higher heights for more capital to meet the requirement. In effect, it has heightened the fear of many players regarding their fate if they are unable to recapitalise by end of the deadline – especially when the Bank of Ghana in recent times seems to prefer the stick to the carrot in terms of its sanctions.

Well, we have heard that a presidential committee has been set up to consider the petition to extend the period. What will happen if our appeal finally hits a snag? We may have to sharpen our tongues and go to our 400 million-capacity Cathedral in cassocks for a vigil and interdenominational prayers. We will pray in the charismatic spirit.

If you don’t know how to pray in tongues, then just adopt your secondary school sine, cosine, and tangent rules soh cah toa and start the prayers “soh cah toa- liba – oh! sha ba labia kata- so cah tah”, Father, cause the BoG to change its mind. Yes! Cause our senior bankers to change their minds in our favour. Cause investors to drop the 400m.We “commaaaaaaand” the 400m cheque to drop now. Our eyes red! We want 4 years! Help us to hit the 400m tangent. Soh cah toa- liba com- lebe loba; eeeeh! Soh! Cash! Toa!

Can you believe it! Before we could say Amen to our prayers, God has already answered the prayers of our colleagues at the Independence Avenue. They reached their prayers’ zenith looooong ago and had crossed their dots over to the GH¢400m. Prayer aglow to the Maker! This is reassuring.  But when it requires that we follow the footsteps of Steve Jobs to merge, why not? One (1%) of a big cake is always better than (100%) of a small cake. Are you still dotting the dots? We are to dot the dots, connect them and cross over to 400m, but we will dot, dot and dot here; and wait to connect the dots some other day.

We remain grateful to the Lord! Have a blessed a day.